With the "fiscal cliff" — when a host of tax cuts expire and spending cuts go into effect — looming, Simpson, who co-chaired the President’s deficit commission with Erskine Bowles, said he doesn’t expect anything to be done until after the election. (Read More: Still Fiddling While the 'Fiscal Cliff' Gets Closer: Bartiromo).

“Between November 6 and December 31, there will be a whirlpool of $5-7 trillion floating around,” Simpson said. “If you go too far, we’re going to go into recession, if you do too little we go into recession.”

Discussing the upcoming elections, the current tax system, and the severity of U.S. debt, with Alan Simpson, former U.S. Senator (R-WY). "Let's take away every yacht, the extra home, the whole works. That money would run the country for 9 months. Who is kidding who? Surely there must be some people with their heads screwed on right," he says.

Simpson wants politicians to start to compromise to avoid going over the fiscal cliff. “If you want to play the game of emotion, fear, guilt and racism, you aren’t going to get anywhere,” Simpson warned. “If you want to play one party, you aren’t going to get anywhere.”

He added, “If you can’t stand the word 'compromise' — if you can’t compromise on an issue without compromising yourself — you’re in deep trouble as a legislator.” (Related: How Much the Fiscal Cliff Could Cost You).

Sen. Simpson also said the present tax system, which has become loaded with tax exemptions that are impossible to remove, needs an overhaul.

Only about 10 percent of the American people actually use those tax exemptions, Simpson said, because "they are the wealthiest and can afford the best guys to get the best [tax] deal,” Simpson said. Only 24-27 percent of people itemize, he noted.

“My hunch is the guys without the guts, who are not going to do anything, are going to get caught next year," he said. If inflation kicks in and interest rates go up and average Americans get stung, voters will vote them out on the next go round, Simpson said. “That’s called raw democracy.”